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Self Directed IRA Real Estate Investing - What It Is

Sep 17, 2008
You may be wondering what all the confusing language surrounding IRA Real Estate Investing really means. Perhaps you have heard the term "self-directed" applied to IRAs used to invest in real estate, but the question is, "What does self-directed really mean, and why is it the best IRA for real estate investing?"

Like most of my readers, you probably know something about real estate, but you may know almost nothing about IRAs. Maybe you've got a job where you have a 401K retirement account. You most likely contribute directly to your retirement account out of each paycheck, and maybe your employer matches those contributions. The money contributed to your 401K is tax deferred (up to certain government imposed limits) until you withdraw it at retirement age.

Also called an Individual Retirement Account - because an individual can open an IRA unrelated to their employment situation - the IRA is an account you can contribute directly to yourself. You can open an IRA whether or not you also have a 401K at your workplace, and deposit up to an annual total specified by the IRS.

The possibility also exists to "roll-over" your 401K funds into an IRA... roll-over is the term used for transferring funds between these types of retirement accounts, and the IRS has specific rules which must be followed to handle these transfers or roll-overs. Keep in mind, I'm just giving you the basics here.

The problem is, neither the IRA or the 401K as they commonly exist can be used for investing in income property. Only the custodian of the account (normally a bank or financial institution) can designate what investments are purchased with these funds, leaving you on the outside looking in, with almost no control over where your own money is invested. About all you can do is state what percentages of your money you want to go into which funds the account is invested in. Not nearly good enough for my money.

There is a specific type of IRA however, called a self-directed IRA, which allows you to designate exactly which investments your IRA moneys are invested in. If you consider yourself to be an expert in residential income property, and you know you can generate a certain rate of return consistently, wouldn't it be a good idea to be able to invest those tax deferred dollars in your 401K or IRA in something you know something about, rather than relying on some faceless fund manager in an office in some distant city? Of course it would!

The simple process would be to open a self-directed IRA (specific conditions and rules apply... the IRA custodian can provide guidance), and start investing in residential real estate, allowing the money to grow in a wonderful, tax-deferred account.

There is even a Socially Conscious Real Estate Investing program, in which the company will handle all of the paperwork, all of the hassles, AND all of the fees associated with setting up your self-directed IRA. They will also handle everything when it comes to buying and selling the property, and the property management hassles.
About the Author
Tom Dunn is a writer, active property investor, and champion of Socially Responsible Real Estate Investing Programs. Visit his practical website IRA Real Estate Investing Programs for the latest information on using your own retirement account to earn a consistent, tax-deferred, double-digit Return On Investment.
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